Advocates claim that voluntary programs can help shore up poorly performing command-and-control environmental regulation in developing countries. Although literature on this issue is quite thin, research on voluntary environmental programs in industrialized countries suggests that they are sometimes ineffective because they mainly attract relatively clean plants free-riding on prior pollution control investments.
We use plant-level data on some 59,000 facilities to identify the drivers of participation in the ISO 14001 certification program in Mexico. We use data on the incidence of regulatory fines to proxy for environmental performance.
We find that regulatory fines spur certification: on average, a fine roughly doubles the likelihood of certification for three years. Hence, the program attracts relatively dirty plants and at least has the potential to improve environmental performance. We also find that plants that sold their goods in overseas markets, used imported inputs, were relatively large, and were in certain sectors and states were more likely to be certified.